Investors require a 17% rate of return on Brooks Sisters' stock (rs = 17%).
a. What would the value of Brooks's stock be if the previous dividend was D0 = $3.75 and if investors expect dividends to grow at a constant compound annual rate of (1) - 2%, (2) 0%, (3) 5%, or (4) 13%? Round your answers to the nearest cent.
b. Using data from part a, what is the Gordon (constant growth) model's value for Brooks Sisters's stock if the required rate of return is 17% and the expected growth rate is (1) 17% or (2) 18%? Are these reasonable results? Explain.